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Dimitry K., Esq.
Dimitry K., Esq., Attorney
Category: Business Law
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Experience:  Run my own successful business/contract law practice.
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I am a CEO of a safety company, my cousin and uncle started

Customer Question

I am a CEO of a safety company, my cousin and uncle started the business and now my cousin is removing himself from the LLC. We owe $20k in back taxes and my cousin asked me to transfer the EIN to my uncle's name. He claims we owe him, but he has not put a dime into the company. We have been in business 8 months now and now we are starting to become profitable but still not out of the red. Our net worth is still in the negative. Once we do an amendment, will he be responsible for the back taxes if we get a new EIN? We do business in the State of Texas.
Submitted: 4 years ago.
Category: Business Law
Expert:  wallstreetesq. replied 4 years ago.
the LLC owes the taxes, whoever is in charge of the LLC, with its original ein number is XXXXX for the taxes.
You should not pay the uncle anything, and the cousin leaving, is liable for the debt of the company also, she he was a shareholder.
Customer: replied 4 years ago.

Uncle is a silent partner and cousin (he) has been running the company. My Uncle is converting the LLC from a partnership (90% he owns/10%cousin owns) to a single member LLC. My Cousin applied for the EIN and asked me to transfer it to my Uncle. Not sure how or why if the EIN is listed as the LLC. My Uncle is continuing the business and my cousin is starting another business (same one we currently have but with a different partner). Cousin is trying to hurry me up to do an amendment to remove him from the LLC while I am trying to investigate the situation. If my cousin signs off the amendment of removal and so do my Uncle, will he still be responsible to the LLC and payroll taxes?

Expert:  wallstreetesq. replied 4 years ago.
if the uncle s removed he will have no liability towards the debts of the LLC, that is why they want him out.
Customer: replied 4 years ago.

I think I have mislead you, Uncle is staying with the business, cousin is leaving the business to start another company. So cousin is being removed and uncle is staying. Sorry for the confusion.

Customer: replied 4 years ago.
Relist: He went offline.
He went offline
Expert:  Dimitry K., Esq. replied 4 years ago.
I see that your relisted your question. Do you wish to wait for the Expert who should be available this after noon to help you, or do you need an answer right away?
Customer: replied 4 years ago.

I would like to know asap so I can make my next move.

Expert:  Dimitry K., Esq. replied 4 years ago.
I understand.

I must agree with the original comments of the previos Expert. Once and if the cousin signs off on the LLC, his obligation to pay off the past debt disappears. That is why he is trying to hurry along the process, as that will remove one type of liability that he may be worried about. In addition, if the Articles are silent on compensation, especially during non-profitable time in the entity, you do NOT have to compensate him. In fact, explain that if he wishes to remain liable for the 10% of the debt the entity currently possesses, you can refuse that he sign over until he provides you with the approximate 2K that is his share of the outstanding debt that the company currently retains.

Hope that helps.

Edited by Dimitry Alexander Kaplun on 4/3/2010 at 7:44 AM EST
Customer: replied 4 years ago.
What about the EIN situation, my cousin requested the EIN under his info, so how would that affect the back taxes.
Expert:  Dimitry K., Esq. replied 4 years ago.
He is not entitled to the EIN, it should stay with the current entity, as otherwise your cousin can claim that he took over the business completely and that you (you and your uncle) are now operating a business that rightfully belongs to him. As he is starting a new entity, have him apply for a new EIN, and do not give him yours.

Hope that helps.

Edited by Dimitry Alexander Kaplun on 4/3/2010 at 7:55 AM EST
Dimitry K., Esq., Attorney
Category: Business Law
Satisfied Customers: 38793
Experience: Run my own successful business/contract law practice.
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Customer: replied 4 years ago.
So he needs to come up with the net loss @ 10% to remove him from the LLC. That sums it up, thank you!
Expert:  Dimitry K., Esq. replied 4 years ago.
Actually yes and no. He is responsible for ALL the debt (as any owners of the LLC are jointly and severally liable for the debt, meaning the lender can choose to pursue one party for all the debt, but internally he is responsible for 10% as if he gets sued first, he can then pursue a claim against the uncle for 90% of the value of the debt, OR your uncle can sue him for the 10% if the uncle gets sued first). I do realize this a bit confusing, but the simple statement is that as 10% owner, he is responsible for 10% debt owed.

Hope that doesn't muddy the waters too much.

Good luck!

Edited by Dimitry Alexander Kaplun on 4/3/2010 at 8:06 AM EST
Customer: replied 4 years ago.
That helps even more! 'preciate your help in this matter.
Expert:  Dimitry K., Esq. replied 4 years ago.
Great. Very happy to assist. good luck to you!

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